Spain's abusive banks

Thu 21st Jun 2012

The big economic news has been the massive 100bn euros bailout of Spain’s banks with perhaps multi billions on the way. However the back story has been the numerous protests by Spaniards against measures to support banks which are largely in trouble through their own greed, corruption and mismanagement.

It is no surprise that Bankia is being investigated by the Guardia Civil for fraud. This is the bank whose 2011 results showed a profit of 40.9m euros but turned out to be a loss of 3.3bn euros. Read those figures again very carefully and you see the full extent of this fiscal fiasco.

The head of Bankia is José Ignacio Goirigoizarri. He asked the Spanish government for a 19bn euros bailout. He also explained that the bank would not be repaying this money. It was not a loan or a handout but capitalisation so didn’t need to be returned. Remember that next time you go to the bank for a loan. Tell them you won’t be paying it back as it’s not a loan but you are recapitalising. Good luck with that one!

The other Spanish banks at the time were outraged by the bailout being handed to Bankia which accounts for around 50 per cent of all the bank debt in Spain. María Dolores Dancausa, a senior official at Bankinter, called the help given to Bankia as excessive and demanded an explanation as she and other bankers believed it gave the bankrupt bank an unfair advantage over them.

Now Spain is set to get a 100m loan not bailout from the Euro zone that money has to be paid back. No doubt María Dolores is happier as all banks will be helped but I doubt whether Germany is going to buy Goirigoizarri’s argument he needn’t repay it as its just “capital”.

On the streets of Spain there is a major backlash against the rescuing of Bankia in what has been and still is an abusive banking system. Let me first take you to the Andalucía town of Ronda. Recently 71-year-old Antonio Gil Jiménez was detained in the centre of Ronda by police after entering a branch of the Caja Madrid and causing a disturbance when he demanded the return of his money. He accused the savings bank, which is now part of the embattled Bankia group, of having cheated him out of his savings.

Days after his protest he decided to take his complaint to the Ombudsman who is responsible for Bankia clients. He has asked for the return of the 18,000 euros he invested with the Caja Madrid three years ago in May 2009 in a deal that lasted “in perpetuity”. Not five years, not 10 years but “in perpetuity.”

Antonio Gil insists that at the time he believed he was investing his life savings in a secure account and not what has turned out to be a “producto basura” – a rubbish product. He had confidence in the financial entity with which he has banked for years but his trust was abused by a bank that could take a pensioners savings “in perpetuity”.

He says that since 2011 he has requested the cancellation of his investment in this product only to be told each time Caja Madrid would contact him. Finally in April he was informed his investment of 18,000 euros was worth 14.306.40 euros and a month later it had fallen further to 13,500 euros. This led to his angry protest in the bank in May.

Gil has asked the ombudsman for the return of his money in its entirety because he had not been given the correct information on an investment product which he has called “abusive”.

He is not alone. Ronda has a population of around 35,000 yet it is estimated that some 200 residents have been cheated by “productos basuras” with a number of financial institutions.

Now let us move on to Arcos de la Frontera just an hour’s drive from Ronda. Recently members of the Andaluz Workers Union and Izquierda Unida (United Left communist led-party) in Espera took over the Arcos branch of Caja Madrid in protest at the government’s rescue of Bankia. The protestors led by the communist mayor of Espera, Pedro Romero occupied the bank from 10.30am forcing the branch to close for business.

The mayor says the situation which is suffered by families in the Sierra de Cádiz is unsustainable, but the government prefers to concentrate its efforts on rescuing Bankia, even though the banks are to blame for the economic crisis. He says the government also makes it impossible for councils to help local residents, by restricting their money.

Also in Cádiz province is Olvera, which is 30 minutes away from Ronda. On the same day as the Arcos protest the communist led council decided to close its accounts with two well-known savings banks because it believes they are not treating its clients properly. The local authority also invited other town halls to adopt similar measures against the abusive banks in their communities.

As you read this courts throughout Spain are admitting cases brought against banks that have entered into abusive agreements with their clients in which they have seen their investment wiped out or greatly reduced. In the courts and on the streets the banks’ troubles are only just starting as a massive backlash takes place which will overshadow any European Union bailout or government intervention. In many areas it is being led by the far left but in its anger Spain knows no political boundaries. More than 26 per cent of its people are unemployed whilst around half of its youth are jobless with no hope for the future. Yet the fat cat bankers are bailed out whilst families experience economic meltdown; have their homes repossessed and their benefits cut. No jobs for half a young generation but financial support, high salaries and bonuses for abusive bankers. Welcome to the Spain of the centre right Partido Popular and its premier Mariano Rajoy: truly the heirs of Franco.